Mending Fences at World Bank

Tuesday

Jun 26, 2007 at 4:43 AM

Robert B. Zoellick, the new chief of the World Bank, will need to smooth ruffled feathers left by his predecessor Paul D. Wolfowitz.

STEVEN R. WEISMAN

WASHINGTON, June 24 — For years, rumors of corruption surrounded an ambitious World Bank project for a system of reservoirs and water tunnels in the mountains of Lesotho in southern Africa. In 2002, the project director was convicted of graft and sent to jail.

But it took the bank another four years to bar two engineering companies that were convicted on bribery charges from getting future contracts, during which time they collected $14 million in fees from the bank.

Combating corruption was a signature issue for Paul D. Wolfowitz in his two stormy years as bank president. Last year, he hailed the belated blacklisting of the companies on the Lesotho project as helping to ensure “that precious public resources go to help the poor, for whom they are intended.”

But the corruption issue was also a source of anger at the bank that contributed to Mr. Wolfowitz’s forced resignation last month amid charges of favoritism toward his girlfriend, who had worked for the bank. Some bank officials fear, and others hope, that with his departure the issue will fade. All indications are, however, that his successor, Robert B. Zoellick, will not let that happen.

“Corruption is a cancer that steals from the poor, eats away at governance and moral fiber and destroys trust,” Mr. Zoellick said. “The challenge is how best to clean corruption out. That’s what the World Bank must diagnose, determine and execute in concert with developing and developed countries.”

[On Monday, Mr. Zoellick, 53, was elected president of the World Bank and will formally take over on Sunday.]

As chief of the bank, which is charged with helping poor nations develop their economies and improve social conditions, Mr. Zoellick will face the challenge of repairing shattered relationships within the institution and between management and the board, which represents the countries that contribute to its operations. He will also need to raise about $30 billion from those countries to rebuild the bank’s program of providing interest-free loans to the world’s poorest countries.

Mr. Zoellick has vowed in private meetings to press an anticorruption agenda but also to avoid Mr. Wolfowitz’s mistakes, like cutting off money and punishing poor people dependent on bank programs in countries that happen to be poorly governed, bank officials said.

Mr. Zoellick, a former top trade envoy and deputy secretary of state under President Bush, said he believed that much of the controversy under Mr. Wolfowitz swirled around the perception that he cared more about corruption than about fighting poverty. In addition, Suzanne Rich Folsom, who was appointed by Mr. Wolfowitz to run the office of institutional integrity, has drawn fire for her management style.

Under Ms. Folsom’s leadership, the department received a 50 percent increase in funding and an expanded mandate to investigate corruption cases. Defenders of Ms. Folsom said that it was inevitable that she would be unpopular, while critics said she had trampled on employee rights and had been selective in her inquiries.

“There are definitely tensions in the system,” Mr. Zoellick said in an interview. “What I’ve found is a high degree of distrust over the real purpose of the anticorruption campaign. Our challenge now is to find real guidelines that can restore everyone’s trust and assure governments that the bank is not wasting money.”

How much corruption exists is a matter of conjecture. A former top official, requesting anonymity because of the sensitivity of the subject, estimated that it might affect as many as 40 percent of bank projects, at least in small ways. Others said the money lost to graft might not be more than a small share of the bank’s lending.

No one disputes that in its 60-year existence, the bank did not do much about corruption until a decade ago, when James D. Wolfensohn, who was then the bank president, made combating it a priority.

The department of institutional integrity was established only seven years ago. It has barred 148 individuals and 190 companies from doing business with the bank. In an institution that employs 10,000 workers, 74 employees have been cited for cases of fraud and corruption.

In recent years, the bank has gone beyond specific cases and started investigations into pervasive corruption problems in Vietnam, Indonesia, Kenya, Cambodia and India.

In India, for example, the investigation persuaded Mr. Wolfowitz to slow three projects worth nearly $700 million that combated tuberculosis and provided maternal and child health care. The inquiry found bid-rigging in procurement of pharmaceuticals that appeared to have been condoned, or to have involved, top government officials.

But when Mr. Wolfowitz suspended funding for these programs, some officials in the bank and at the British development office, which was a co-sponsor of the health projects, protested that innocent sick people would suffer. They forced a rewriting of the rules curbing the ability of the bank president to suspend funding unilaterally.

Mr. Wolfowitz also angered colleagues at the World Bank when he suspended funding for Uzbekistan over allegations of human rights abuses. Some officials said that he was influenced by Uzbekistan’s decision to bar American warplanes from its airspace.

In Vietnam, the bank’s integrity division decided to investigate pervasive corruption problems after a scandal last year involving charges of theft, bribery and nepotism in a road-building project. Vietnamese prosecutors charged that road-building money lined the pockets of officials and also went to pay for gambling and prostitutes.

The institutional integrity reviews, however grounded in realities, have left a legacy of tension between the anticorruption investigators and the rest of the bank. Many officials at the bank said that some of their colleagues believed that minor graft was a small price to pay to speed vitally needed programs for the poor.

“Relations between the bank staff and the department have really soured in the last two years,” said a former top official of the institutional integrity unit. “There is a lot of pushback from everyone at the bank, because of the us-against-them attitude created by Wolfowitz.”

Christopher B. Burnham, a former United Nations under secretary general for management, said that Mr. Zoellick must figure out how to enlist suspicious bank officials in his agenda. “International bodies operate by consensus,” Mr. Burnham said. “He has to bring everybody along with him.”

Mr. Zoellick has not signaled his intentions about Ms. Folsom’s office, according to bank officials, other than to say that he has learned of the distrust between her and others. For example, the bank’s staff association, which represents the bulk of its employees, has accused her office of trampling on the rights of employees and investigating some unfairly.

In addition, the bank’s 24-member board has raised concerns about what directors say is a backlog of uncompleted investigations and a decline in the number of cases closed.

In an interview, Ms. Folsom said that in the last two years the department had moved to “a new level of processing cases,” overhauling its procedures, including a program for companies and individuals to disclose graft voluntarily to avoid even harsher sanctions.

Still, she said, “this department has been unpopular since its creation seven years ago.”

“This type of department is always going to be unpopular. There are going to be some people who just don’t want to be bothered.”

Ms. Folsom’s defenders include Mr. Wolfensohn, the former bank president, who enlisted her as an adviser long before Mr. Wolfowitz put her in charge of the integrity unit.

In an interview, Mr. Wolfensohn praised Ms. Folsom as an “extraordinarily competent” official who had been “unnecessarily damaged” by the controversy surrounding Mr. Wolfowitz.

“The fact is, there is corruption in all international aid activities,” Mr. Wolfensohn said. “It’s not a surprise that in some countries, it becomes excessive and you shouldn’t do business with them.”

The furor over Ms. Folsom, and Mr. Wolfowitz’s actions following her findings, led last year to the establishment of an outside review of the anticorruption efforts by a group headed by Paul A. Volcker, the former Federal Reserve chairman. The review is to be completed by September, prompting speculation at the bank that it might lead to Ms. Folsom’s departure.

But Mr. Volcker said in an interview that he did not expect the review to single out individual performances.

“We’ll be drawing some conclusions, but we’re not going to point fingers at particular individuals,” Mr. Volcker said in an interview.

Mr. Wolfensohn said that he had conferred at length with Mr. Zoellick and that he believed the new president seemed to be going about the issue in the right way.

“He is already reaching out,” Mr. Wolfensohn said. “He understands that you have to return the bank to its main thrust, which is development on behalf of the poor.

“As one of the elements, you want to combat corruption,” Mr. Wolfensohn added. “But you can’t make the bank into the attorney general of the world.”

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